The Week Ahead: US Housing Sector, China, and BoJ Pivot Bets

Highlights

• US Dollar Trends: Housing Sector and Jobless Claims.
• Euro’s Path: Spanish Indicators and ECB Warnings
• Aussie and Kiwi Dollars: Chinese Indicators’ Impact.

The US Dollar

Chicago Fed National Activity and house price numbers (Tues) kick off a shortened week. Housing sector figures could have more influence.

An upward trend in house prices could signal a robust US economy. Economists consider US housing sector data as leading economic indicators. An improving housing sector environment supports consumer confidence. A pickup in consumer confidence fuels consumer spending and contributes to demand-driven inflation.

On Thursday, US jobless claims need consideration. Steady initial jobless claims would signal stable labor market conditions. A tight labor market supports wage growth and disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

The net effects could be an adjusted Fed rate path projection to curb consumer spending and tame inflation.

Chicago PMI numbers for December wrap up the year for the US dollar. Economists forecast a sharp fall, which could reignite fears of a hard landing.

The EUR

In a shortened week, Spanish economic indicators will influence the buyer appetite for the EUR/USD. On Friday, preliminary inflation numbers for December will garner investor interest.

The ECB remains committed to keeping rates higher for longer to tackle inflation. Sticky inflation numbers could support warnings from ECB Executive Board members that calling victory against inflation is premature.

The Pound

It is a shortened week for the Pound. UK house prices need consideration on Friday. An unexpected fall in UK house prices could impact buyer demand for the Pound. Falling house prices affect consumer confidence and consumer spending.

Downward trends in consumer spending would dampen demand-driven inflationary pressures. A softer inflation outlook could allow the Bank of England to begin discussions about interest rate cuts.

The Loonie

There are no economic indicators to influence the buyer appetite for the Loonie. The lack of stats will leave the Canadian dollar in the hands of crude oil numbers and market risk sentiment.

From elsewhere, crude oil prices will also influence trends for the Loonie. On Wednesday, industrial profit numbers from China could impact the appetite for riskier assets and the Canadian dollar.

The Australian Dollar

Chinese economic indicators and stimulus chatter from Beijing would impact the Aussie dollar. On Wednesday, industrial profit numbers from China need consideration.

Improving economic conditions would support a pickup in industrial profits and signal a pickup in demand. China accounts for one-third of Australian exports. Increased demand from China would be a boon for the Australian economy and the Aussie dollar.

Australia has a trade-to-GDP ratio above 50%, with over 20% of the workforce in trade-related jobs.

The Kiwi Dollar

It is a shortened week for the Kiwi dollar. However, economic indicators from China warrant consideration. China is New Zealand’s largest trading partner, exposing the Kiwi dollar to the Chinese economy.

On Wednesday, industrial profit figures from China will draw investor interest. A pickup in profits would signal an improving macroeconomic environment. A pickup in economic activity could drive demand for New Zealand goods and the appetite for the Kiwi dollar.

The Japanese Yen

On Tuesday, the Japanese labor market will put the Japanese Yen in focus. Tighter labor market conditions would align with expectations of higher wages. An upward trend in wages would drive consumer spending and demand-driven inflationary pressures. Significantly, wage growth trends could influence the Bank of Japan’s monetary policy intentions.

In December, the Bank of Japan left interest rates in negative territory and skirted the topic of a pivot from negative rates. Employment data could change the narrative.

On Thursday, retail sales warrant investor attention. An upward trend in consumer spending would fuel demand-driven inflation and prompt the BoJ to discuss an exit from negative rates.

Other stats include finalized industrial production numbers (Thurs). However, the numbers will likely play second fiddle to the retail sales data.

Out of China

Industrial profits for November will garner investor interest on Wednesday. A pickup in industrial profits would drive demand for riskier assets and commodity currencies. Industrial profits provide investors with a litmus test of the Chinese economy.

Beyond the numbers, investors must monitor stimulus chatter from Beijing.